Explain why the price elasticity varies even when a firm faces a linear demand curve.
What will be an ideal response?
A linear demand curve has a constant slope. A constant slope implies only that absolute changes in quantity demanded remain unchanged with respect to a unit change in price. However, the concept of price elasticity is based on percentage change rather than absolute change. Thus, even if the slope of a demand curve is constant, percentage change in quantity demanded and percentage change in price between two different points vary.
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Consider the market for turkeys. In the United States, because of Thanksgiving in the month of November,
A) there is a downward movement along the demand curve for turkeys. B) there is an upward movement along the supply curve for turkeys. C) the supply curve of turkeys shifts leftward. D) the demand curve for turkeys shifts leftward. E) neither the demand curve nor the supply curve shift; instead there is a movement along both curves.
When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________
A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D) depreciated; depreciated